$AAPL Drops 3.8% on Foxconn, Euro Concerns, Fiscal Cliff

Shares of Apple Inc. were pummeled Wednesday with the rest of the market, as investors used the trading session to freak out over iPhone maker Foxconn, Europe, the so-called "fiscal cliff" in the U.S., and maybe even a little politics. $AAPL ended the day at US$558.002 per share, a sharp loss of $22.198 (-3.83 percent), on heavy volume of 28.3 million shares trading hands.

Actually, let's make that "definitely a little politics," because Europe's economy, the U.S. "fiscal cliff," and Tuesday's election in the U.S. are all political at their core, and they all combined to spook the bejesus out of Wall Street.

The European Commission released revised projections for 2012 and 2013, and when we say revised we mean lowered. The EU now expects a slight 0.3 percent contraction of its economy this year, while 2013 is projected to do just a tad bit better.

Europe has long been in a bind as efforts to decrease debt are having the side effect of stagnating the economy. Wednesday's report from the European Commission told investors this wasn't likely to be fixed any time soon.

Fiscal Cliff

The "fiscal cliff" is the name given to a deal reached last year in Washington that pushed a deadline for resolving a budget shortfall for the federal government until 2013, after the election. Congress and the White House have to come up with $600 billion in budget cuts and/or tax increases or face automatic and across-the-board cuts to defense, entitlements, and everything else.

These cuts are widely expected to derail the economy, making a deal absolutely imperative.

Tuesday's election left the Democrats in charge of the Senate, but without a filibuster-proof super-majority, while leaving the Republicans in charge of the House of Representatives. Oh, and President Barack Obama was re-elected, too.

All of which means that nothing changed in the makeup of our government, and investors are worried that one or both parties will let the U.S. drive off that fiscal cliff rather than compromise. The Republicans are committed to not increasing taxes, while the Democrats want to allow the Bush Tax Cuts to expire on the wealthy, hence the concern from Wall Street over the prospects of a solution.

Terry Gou, Hon Hai Precision Chairman told the Wall Street Journal, "Market demand is very strong, but we just can't really fulfill Apple's requests." He added that the production issues are design related, but didn't elaborate on which parts of the construction process are causing problems.

Any constraint of iPhone 5 supplies could lead to Apple missing Wall Street estimates for iPhone sales. Apple hasn't commented on Foxconn's comments.

Jeff Gamet contributed to this report.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

“Apple shares dropped 2 percent on Thursday morning. This comes after a rough day Wednesday in which Apple’s shares slid 3.8 percent, outpacing a broader decline in the stock market set off by investors’ uncertainty about how the outcome of the presidential election will affect taxes and consumer demand for the types of products Apple sells. The recent declines only added to what has been a grim few weeks for Apple shares. They have fallen over 20 percent from their peak, to $546 Thursday morning.

During the campaign, President Obama proposed increasing capital gains tax rates for people earning over $250,000 to 20 percent from the existing rate of 15 percent, and his re-election Tuesday night may have prompted some investors to unload shares in anticipation of a broader sell-off in stocks ahead of a tax increase, analysts said.

Owners of Apple shares would have good reason to fear higher taxes on capital gains. Apple shares have appreciated mightily since 2005 when they were about $35 apiece; they began this year at $411 and peaked at more than $700 in late September.”

On the basis of the NYTimes Bits Blog selection I posted above, if I had any AAPL shares, I would:

1. sell them all ASAP (I.e. before even taking the time to write the comment I posted above), and
2. wait until their price had dropped closer to $411 or until after New Years (whichever came first) to buy back as many AAPL shares as I could then afford.